19. Registration and incorporation Flashcards
- Registration and incorporation
General overview
[19.01] This section codified the common law attributes of incorporation of a company under subsection (5). Chief amongst these attributes are the separate legal personality of a company from its incorporators and the limited liability of these incorporators which may be open to abuse by fraudsters to the detriment of creditors of the company. Hence, there are devices at common law to “lift the corporate veil” to make the incorporators personally liable for the debts of the company and also under ss 339 and 340 of the Act.
Procedural requirements
- need to state the “last day of the proposed company’s first financial year” and such other information as may be prescribed. Basically, this new requirement makes the registrant(s) focus on planning the first year of business of the proposed company, and might discourage the current practice of incorporating shelf companies.
[19.02] The procedural requirements have been kept simple to facilitate the incorporation of a company under the Act: s 19(1). These days, registration of a company can be effected online through the website of ACRA. Act No 15 of 2017 amended subsection (b) by requiring the registrant to state the “last day of the proposed company’s first financial year” and such other information as may be prescribed. Basically, this new requirement makes the registrant(s) focus on planning the first year of business of the proposed company, and might discourage the current practice of incorporating shelf companies.
Common seal
[19.03] The word “common seal” is deleted in subsection (5). Refer to the new s 41A which provides that a company may have a common seal but need not have one.
Effect of incorporation
[19.04] Under s 19(5), the incorporation of a company has the following effect:
(a) the company is a body corporate with the powers of an incorporated company;
(b) it may sue and be sued in its own name;
(c) it has perpetual succession;
(d) it may own land; and
(e) the liability of the members is limited in the event of a winding up.
Separate legal personality
[19.05] It is trite law that the company is a distinct and separate entity from its members or shareholders: Salomon v Salomon & Co Ltd [1897] AC 22 . Hence, the owner of a timber estate who insured the timber in his own name rather than the name of the company of which he was the sole shareholder, did not have an insurable interest in the timber and could not claim under the policy: Macaura v Northern Assurance Co Ltd [1925] AC 619 . An unsecured creditor did not have an insurable interest as unsecured creditor whilst a secured creditor under a debenture had an interest in the company’s property by way of a charge, and could take out a policy on the company’s property: Macaura (above). The fact that one person holds all, or substantially all, of the shares in a company, does not, without more, make the company’s business that person’s business in the eyes of the law: Gramaphone and Typewriter Co Ltd v Stanley [1908] 2 KB 89 . A sole shareholder and director may also be employed by the company
Foreign companies
[19.06] Conflicts of law, viz. Vietnamese law – Singapore company suing Vietnamese company under a sale of goods agreement – Vietnamese company claiming agreement entered into by Singapore company with third party – whether third party is a separate legal entity from Vietnamese company
Interlocutory proceedings
[19.07] Sometimes, applicants for interlocutory proceedings such as a Mareva injunction or freezing order would plead for a lifting of corporate veil to reach assets of the defendant held by him in corporate entities: Pek Seng Co Pte Ltd v Low Tin Kee & Ors [1989] SGHC 83 ; J H Rayner (Mincing Lane) Ltd & Ors v Manilal & Sons (M) Sdn Bhd & Anor [1987] 1 MLJ 312. The law on injunctions is well settled. The two conditions that the applicant has to satisfy are: (a) a real risk of dissipation; and (b) the existence of assets within the control, or effective control of the defendant. In granting such an injunction, it would fly in the face of reality and common sense for a court to hold that the sole beneficial owner of the shares in a company was not indirectly the owner of the net assets of that company. He has full and untrammeled control, i.e. effective control to deal with or dispose of the assets and no one can stop or prevent him from doing so. Thus, the law in this area looks at effective control of the defendant over the assets and does not require a lifting of corporate veil to restrain him from dealing or dissipating those assets.
[19.08] In addition, discovery actions against overseas subsidiaries of multinationals, Shell and BP, for certain documents held by them in Zimbabwe and South Africa were disallowed even when these subsidiaries were wholly owned and controlled by their parent companies: Lonrho Ltd v Shell Petroleum [1980] QB 358, CA; [1980] 1 WLR 627, HL .
[19.09] In ancillary proceedings for discovery in a divorce action between the husband and wife, one party may seek to ascertain the full extent of the other party’s assets through a lifting of the corporate veil, where the assets are held in complexly structured offshore companies: Prest v Petrodel Resources Ltd & Ors [2012] EWCA Civ 1395; [2013] UKSC 34 . Per Lord Sumption: the concealment principle is based on the interposition of a company or several companies so as to conceal the identity of the real actors; cf the evasion principle which is grounded on the court disregarding the corporate veil if there is a legal right against the person in control which exists independently of the company’s involvement, and the company is interposed so that the separate legal personality of the company will defeat the right or frustrate its enforcement: Gencor ACP Ltd v Dalb [2000] 2 BCLC 734 ; Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177 . The corporate veil would not be lifted if there was no impropriety on the part of the defendant. Furthermore, the same legal principle applies in matrimonial proceedings as it applies in general company law.
Confiscation of proceeds of crime
[19.10] Lifting of the corporate veil under the Proceeds of Crime Act 2002 (UK) for offences of corruption and fraud: R v Sale [2013] EWCA Crim 1306; [2014] 1 WLR 663, CA . Confiscation orders made in sums equal to turnover of companies during period of contravention by disqualified directors: R v Seager [2010] 1 WLR 815, CA ; R v Blatch [2009] EWCA Crim 1303; [2010] 1 WLR 815, CA ; R v Boyle Transport (Northern Ireland) Ltd & Ors [2016] EWCA Crim 19 for conspiracy to make false statements; considered R v Seager (above); R v Sale (above); R v McDowell [2015] 2 Cr App R(S) 14, CA
Lifting the corporate veil at common law
[19.11] In view of the corporate personality concept protecting its members and shareholders from liability to third parties, the opportunity for fraud exists in some instances. The courts have lifted the corporate veil on various grounds so as to hold the members/shareholders or Controllers personally liable for the debts of the company to its creditors or other third parties
Evading existing legal obligations
[19.12] The company was used to evade an existing contractual obligation: Gilford Motor Co Ltd v Horne [1933] Ch 935, CA ; Jones v Lipman [1962] 1 WLR 832, HC ; cf Adams v Cape Industries plc [1990] Ch 433, CA where arrangements to form separate companies in various jurisdictions for the mining and marketing of asbestos to take advantage of the corporate form (i.e. future legal obligations) were held to be a valid reason of the incorporators. The corporate veil was not lifted in The Andres Bonifacio [1993] 3 SLR(R) 71; [1993] SGCA 70, CA ; Miller Freeman Exhibitions Pte Ltd v Singapore Industrial Automation Association [2000] 4 SLR 137 ; Gerhard Hendrik Gispen & Ors v Ling Lee Soon Alex & Anor [2001] SGHC 350.
Fraud
[19.13] The company was used to commit fraud
Sham or façade
[19.14] The company was used as a sham or façade. A sham means “the acts done or documents executed by the parties to the ‘sham’ which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create”: Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd & Anor [2000] 2 SLR 98; [1999] SGHC 94 ; Children Media Ltd & Ors v Singapore Tourism Board [2008] SGCA 45 ; Sitt Tatt Bhd v Goh Tai Hock [2009] 2 SLR(R) 44; [2008] SGHC 220. It was held that for acts or documents to be a sham, with whatever legal consequences that follow from it, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating
Agent or nominee
[19.15] The company was an agent or nominee of the controllers: Re FG (Films) Ltd [1953] 1 WLR 483, Ch D ; Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd & Anor [2000] 2 SLR 98; [1999] SGHC 94 ; Smith, Stone & Knight Ltd v Birmingham Corp [1939] 4 All ER 116, HC . In cases such as Smith, Stone & Knight Ltd (above) and DHN Food Distributors v Tower Hamlets London Borough Council [1976] 1 WLR 852, CA , where the issue is whether the claimant may claim compensation for premises compulsorily acquired by the relevant council, the English courts might be inclined to lift the corporate veil so as to prevent parties’ being deprived of compensation based on a legal technicality of separate corporate entity; cf Woolfson v Strathclyde Regional Council (1978) SLT 159; 38 P & CR 521 where on appeal from Scotland, the House of Lords disallowed the principal shareholder of a company to recover compensation for the compulsory acquisition of a property which the company occupied.
Alter ego
[19.16] The members/directors are the alter ego of the company: Win Line (UK) Ltd v Masterpart (Singapore) Pte Ltd & Anor [2000] 2 SLR 98; [1999] SGHC 94. In view of the common practice of setting up related companies or a group of companies with common shareholders and directors, the alter ego argument is often used to lift the corporate veil: New Line Productions Inc v Aglow Video Pte Ltd [2005] 3 SLR(R) 660; [2005] SGHC 118 where Tay Yong Kwang J held that the companies in the TS Group were not a loosely-knit group but were really little pieces of mosaic forming a complete mural, glued together by the four directing minds. In a British Virgin Island incorporated company for the sole purpose of receiving payment under the share acquisition agreement, the controller was sole director and shareholder of company and the “directing mind and will” of the company: Alwie Handoyo v Tjong Very Sumito & Ors [2013] SGCA 44 ; cf NEC Asia Pte Ltd (now known as NEC Asia Pacific Pte Ltd) v Picket & Rail Asia Pte Ltd & Ors [2010] SGHC 359 where mere evidence of sole shareholding and control of the company without more will not move the court to intervene.
Single economic unit
[19.17] The company was part of a group of associated companies (“single economic unit” argument): DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852, CA ; cf Scottish decision in Woolfson v Strathclyde Regional Council (1978) SLT 159; 38 P & CR 521 ; Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 at 567 ; Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34 ; Kosmopoulos v Constitution Insurance Co of Canada [1987] 1 SCR 2 ; AG v Equiticorp Industries Group Ltd (In Statutory Management) [1996] 1 NZLR 528 ; Cape Pacific Ltd v Lubner Controlling Investments (Pty) Ltd 1995 (4) SA 790, App Div at 802–803. The argument was rejected in Adams v Cape Industries plc [1990] Ch 433 , where a person in control of the company would be liable as if he were a co-contracting party with the company to a contract to which he was not a party and to which none of the parties had intended that he should be: VTB Capital plc v Nutritek International Corp & Ors [2013] UKSC 5; [2013] 2 AC 337; [2013] 2 WLR 398 ; Cavenagh Investment Pte Ltd [2013] SGHC 45 ; Manuchar Steel Hong Kong Ltd v Star Pacific Line Pte Ltd [2014] SGHC 181. The connectedness or closeness of the companies controlled by a single family did not indicate that they were a mere sham or façade: Simgood Pte Ltd v MLC Barging Pte Ltd & Ors [2016] SGCA 46 affirmed the High Court’s decision not to lift the corporate veil, reported in [2016] 1 SLR 1129; [2015] SGHC 303.
